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In Tri-Etch, Inc. v. Cincinnati Insurance Co., the Indiana Supreme Court unanimously concluded that there is a presumption in favor of the insurer with regard to prejudice from an insured’s late notice of a claim, and the Court further concluded that it “[did] not agree that an insurer’s denial of coverage on other grounds as a matter of law rebuts the presumption of prejudice from late notice.”

The case arose from an alarm monitoring company’s failure to notify a client of its failure to set its night alarm as scheduled. The alarm monitoring company had three commercial general liability insurance policies at the time of its error. Two of the policies were issued by Cincinnati Insurance and neither included errors and omissions coverage. Cincinnati Insurance denied coverage on the claim on three separate grounds. First, Cincinnati argued that neglect of a professional duty was not an “occurrence” because it was not an “accident,” the policy’s definition of “occurrence.” The Court agreed. “Lack of intentional wrongdoing does not convert every business error into an ‘accident.’ This failure is the same sort of claim as lawyer malpractice, or an insurance agent’s failure to secure coverage as the client directed.”

Cincinnati also denied coverage based on the fact that its policy specifically excluded bodily injury “arising out of any act, error or omission of the insured in rendering or failing to render telephone answering, alarm monitoring or similar services.” Reasoning that notifying an insured of its failure to arm its alarm system is at the “core of alarm services, just as much as calling to report a break in,” the Indiana Supreme Court concluded that the policy excluded this type of claim. However, the fact that Cincinnati had expressed reasons to deny coverage did not mean it expressed them in lieu of a defense that it was prejudiced by Tri-Etch’s failure to provide notice of the claim. The Court stated:

There is no reason why an insurer should be required to forego a notice requirement simply because it has other valid defenses to coverage. If there is no prejudice to the insurer from lack of notice, the absence of prejudice does not arise from the insurer’s taking the position that it also has other valid defenses to coverage. Rather, it arises from the insurer’s taking no action with respect to the claim because of its other defenses. Even if an insurer consistently denies coverage, timely notice gives the insurer an opportunity to investigate while evidence is fresh, evaluate the claim, and participate in early settlement. The fact that an insurer asserts other coverage defenses does not render these opportunities meaningless.